Do you like Random Dividends? NLY

Happy Monday DividendMonkey World. One benefit of not writing my dividend rules too strictly is that it allows to be diversify in many other dividend types that other investors cannot do without breaking their rules. One rule that many do not want to break is to only own a stocks that consistently pays a higher dividend every year. I do not have that rule in my DividendMonkey’s Rules of Investing here. Since we are always learning, they will change over time, but they are a good start for us, and you probably should make your own rules.  Anyways, I am a little proud of this idea. The random dividend payer.

One type of REIT is the mREIT (mortgage REIT). The way mREIT’s make money is that they buy mortgages with a long-term interest rate and borrow money in the short-term. Just like a bank giving you 0.5% interest for your deposits and lending other people money on a car for 4%, they keep the difference, minus their expenses. While the percent will be different, it is still good for illustration purposes. Well, right now, the difference between long and short-term is small, and mREIT’s do not have much control over it. Because of it, a lot of them have lost a lot of their share price and pay a smaller dividend per share.

After looking through the list of mREIT’s, the biggest we see is Annaly Capital Management (NLY). Since the sector has been hit so hard, we figured there is safety in size for a best of breed. Their 10-year high is about $20 a share and they were paying about $2.40 a year for each share dividends. Today, they are only $9 a share and only pay $1.20 dividend.

Since interest rate spreads are not in their control, their dividend over the last 15 years has gone from $0.60 to $2.40. So my predicted yield will be random between 6.7% and 27%. Assuming their dividend stays in that range, no matter what, I go from a good dividend yield to an amazing dividend year. And the benefit right now that I have is that I do not need a consistent dividend. It does not appear that they can or aim to produce a consistent dividend with the business they are in. So I am not going to hold it against them. Now if you need a predictable dividend, they are not for you.

With the dividend on the lower end, why do I not wait until the dividend increases before buying. It could take years to get there. Yes, but if I wait until they pay $2.40 a share again, the stock price could be $30, only getting me an 8% yield. Now, don’t get me wrong, 8% is good, but 27% is way better on YOC (yield on cost). And it might only stay at $2.40 for a few years before going back down. And then the share price will go back down. I rather pay the cheaper price and ride the waves up and down then at the possible higher future price.

With a couple of years at a 27% dividend yield and a few other years, I might get lucky and get my full investment paid in the next 6 years. On top of that, I will still have my shares. While hope is not a strategy, a little luck never hurts. And if I get the lower amount at a 6.5% yield, I will consider this a success, even though that would be a dividend cut from today. At least that is my view for this stock.

Because of this, this is definitely in my speculation category. So this will provide me diversification into speculation and into inconsistent dividend payers. This will also add some fun into my list, and enjoying the game is important.

So today I bought 32 shares of Annaly Capital Management (NLY) for $295.64 including the spiffy commission I get to pay. Currently, they will pay me $38.40 a year in dividends. Although, that amount can easily go from $19.20 to $76.80 a year in dividends. Let the dice roll and see what they pay me this year.

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7 thoughts on “Do you like Random Dividends? NLY

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